The Moment Everyone Is Waiting For

According to much expert opinion, the Fed's action and statement, due for release early in the afternoon, will enhance or diminish public confidence in the global financial system and the Fed as the primary institution of that system.

The Fed's principal weapon in fighting recessions, on the one hand, and inflation, on the other, is its ability to set short-term interest rates. The current rate of 5.25 percent has been in place since June 2006. The last time the Fed reduced its target rate was June 2003, when it was cut to 1 percent.

Tuesday's meeting, the sixth of eight scheduled for 2007, is the first since a global credit crunch erupted in August. On Aug. 17, the Fed, after an unscheduled meeting, responded to the crisis by trimming a special rate, called the discount rate, it charges banks for emergency loans to 5.75 percent from 6.25 percent. But the rate on overnight loans between banks, called the federal funds rate, stayed at 5.25 percent.

Prospects for a recession or worsening inflation are uncertain and debatable. Nonetheless, at least three opportunities for additional action confront Fed policymakers Tuesday: the fed funds rate, the discount rate and the statement typically issued after Fed policy meetings.

With the uncertain housing market looming, foreclosures steadily rising, and durable goods increasing, the balancing act is a tough one. It's wait and see. Perhaps to avoid a recession, the Fed just may do the same. Keep in mind, the Feds decision to lower the key rate is by no means clear whether your ability to obtain a mortgage, even with a large down payment and excellent credit record, will improve anytime soon. So perhaps, the Fed should do the same. Wait and see......

Bradley E. Arnowitz, P.A. & Associates
ClientCare@ArnowitzProperties.com
(305) 776.6113

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